Dáil Éireann Debate, Thursday - 26 September 2024
130. Deputy Darren O'Rourke asked the Minister for Finance if he plans to change the tax treatment of pension lump sums in the case where the lump sum is used to pay off debt on a family home (details supplied);; and if he will make a statement on the matter. [38296/24]
Amharc ar fhreagraOverall, the policy objective for tax relief on pension contributions is to encourage individuals to save for retirement; to help meet a targeted level of supplementary pension coverage and income replacement; and to assist in preventing an over-reliance on State support for citizens in later life. Accordingly, pensions already have their own special treatment within the tax system to encourage these preparations. Ireland operates an Exempt, Exempt, Tax (EET) system. Contributions to pensions (within certain limits) are exempted from income tax, pension fund gains are exempted from income tax, and income from pension drawdown is taxed other than a tax free lump sum.
The scenario outlined by the Deputy involves an individual drawing down a lump sum from pension savings before retirement to pay off certain debts. This is not permitted under the legislation governing the tax treatment of pensions in Part 30 Taxes Consolidation Act 1997, which provides that benefits from a pension, including a lump sum, must be taken on retirement or in other limited circumstances, such as payment of pension benefits to a surviving spouse or civil partner of a deceased member of a pension scheme.
The policy intention behind pension tax reliefs is to encourage the pension saver to provide for income in retirement, rather than to avail of a once off payment, or to use pension savings for other purposes. Any changes to the tax treatment of pensions must be considered in the light of Ireland’s EET pension tax system, which is the most common system in OECD countries. Therefore, I do not currently have any plans to allow pension savers to access their funds tax free before retirement. However, as with all taxation, the rules regarding pensions are kept under ongoing review.
